South Africa-based Sasol has reevaluated its Lake Charles Chemicals Project (LCCP) in Louisiana and determined that the 1.5 million tonne per annum ethane cracker and six associated downstream chemical facilities are running behind schedule and over budget.
In March Sasol began a review of LCCP. “At that time, there were early indications that the overall end-of-job cost was under pressure…Total capital expenditure for the project could increase up to US$11 billion, including site infrastructure and utility improvements,” the company said. “This estimate includes a sufficient contingency to effectively manage the project to beneficial operation.” When the project was announced in late 2014, the cost was estimated at $8.1 billion (see Daily GPI, Oct. 27, 2014).
Most of the cost hike is due to construction delays caused by excessive rainfall, higher labor costs, certain lump-sum bid contract prices being higher than estimates, as well as some bulk materials quantities exceeding original estimates, Sasol said.
The six downstream chemical projects of LCCP include two large polymers plants and an ethylene oxide/ethylene glycol plant, which together would consume about two-thirds of the ethylene produced by the cracker. Also included are three smaller, higher-value derivative plants, which would produce specialty alcohols, ethoxylates and other products. The project is under construction near Lake Charles, adjacent to Sasol’s current chemical operations.
Sasol has dialed back spending until June 2018 in response to low oil prices, and this has extended the LCCP schedule and contributed to cost increases, the company said. “The increase in the estimated LCCP capital cost and extended schedule will reduce the expected project returns by approximately the same amount as the company’s lower long-term price assumptions,” Sasol said.
Sasol said it expects to complete a detailed review of the project during the third quarter and will announce findings along with annual results in September. At the end of April, capital expenditure was at US$4.5 billion, with project completion beyond 40%.
“It is, however, important to emphasize that no material or unexpected scope changes to the project have taken place,” Sasol said. “Overall construction on the project continues on all fronts, with most engineering activities nearing completion and procurement well advanced.”
The ethane cracker could be online during the second half of 2018. “…which will enable around 80% of the total output from LCCP to reach beneficial operation later in 2018 and early 2019. The remaining volumes from the other derivative units will reach beneficial operation by the second half of 2019,” Sasol said.
Analysts at Tudor, Pickering & Holt Co. said the cost overruns and delay are “not a huge surprise” in light of the large number of chemical and liquefied natural gas projects in the region.
Separately on Monday, BASF Corp., the North American affiliate of BASF SE of Germany, said it has postponed a final investment decision on its proposed methane-to-propylene complex in Freeport, TX. “On-purpose production of propylene based on favorable U.S. shale gas is interesting for BASF. We will regularly review the development of raw material prices and the relevant market conditions to determine the right point in time to commence such a major investment,” said Wayne T. Smith, a BASF board member. BASF said in 2014 that it was considering the project (see Daily GPI, May 2, 2014).
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